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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: HON’BLE S/SHRI JOGINDER SINGH (JM), & RAJESH KUMAR,(AM)
Per RAJESH KUMAR, Accountant Member:
This is an appeal filed by the assessee and is directed against the order of the Ld. CIT(A)-40, Mumbai dated 7.8.2014 pertaining to A.Y.2011-12.
The issue raised in Ground No.1 is against the confirmation of disallowance of Rs.6,19,665/- by the ld.CIT(A) as against the addition of Rs.23,33,721/- made by the AO under section 14A of the Income Tax Act, 1961 read with rule 8D (2)(iii) of the Income Tax Rules, 1962 on account of administrative expenses for the purpose of investments in shares.
At the outset, the ld.AR submitted before us that the issue involved in the present case is fully covered in favour of the assessee by the decision of the co-ordinate Bench of the Tribunal in assessee‟s own case in (AY-2010-11) dated 11.12.2015 and therefore, the appeal of the assessee deserved to be allowed by following the decision of the Tribunal in assessee‟s own case in the preceding assessment year.
The ld. DR very fairly appear to be in agreement with the argument of the ld.AR.
5. We have heard the rival submissions and perused the relevant record placed before us including the orders of authorities below and case law relied upon by the assessee in assessee‟s own case. We find that the AO made disallowance under section 14A read with rule 8D(2)(iii) which was reduced to Rs.6,19,625/- by the ld. CIT(A) by partly allowing the appeal of the assessee. We find that an identical issue has been decided by the Mumbai Bench of the Tribunal in assessee‟s own case (supra) in favour of the assessee. The operative part of the Tribunal order is reproduced below: “3. Before us, ld. Counsel for the assessee informed that identical issue was decided by the Tribunal in a related concern namely Capstan Trading Private Limited (vide for the Assessment Year 2010-11 dated 11.03.2015). In this regard he brought our attention to the ground which found similarly worded and informed that the facts are also identical with mutatis mutandis. Tracing the facts of the said case, the counsel demonstrated that the AO made disallowance u/s. 14A of the Act read with Rule 8D(2)(iii) on account of administrative expenses and applied the rate of 0.5% of the average value of investment. However, he ignored the fact that the expenses actually incurred for earning the dividend income is less than what is disallowed by the AO. The CIT(A) confirmed the order of AO, ignoring the facts of the case.
Under these circumstances, the matter was decided by the Tribunal in the said case on 11.02.2013, vide the discussion given in para 7 of the said order (supra) the appeal of the assessee was allowed. The Tribunal held that the disallowance made by the assessee is just and proper. He also brought our attention to para 6, where schedule “K” containing the details of the administrative and the other expenses were extracted and made part of the order of the Tribunal, and drew parallel to the similar expenses of these three appeals under consideration. The concern schedule is differently numbered in other cases of appeals and the counsel demonstrated the expenses claimed are more or less identical, in such circumstances, the ratio laid down by the Tribunal in the case of Cape Trading Private Ltd. (supra) is applicable to the facts of these three appeals.
6. Ld. DR for the Revenue relied heavily on the order of the CIT(A) / AO. We perused them and examined closely the said decision of the Tribunal in the case of Cape Trading Private Ltd. and find the expenses mentioned in para 6 of the said order are more or same. We compared the heads of accounts of the expenses of the administrative and other expenses and in comparison we find majority of expenses claimed by the assessee are more or less on same accounts, i.e., auditors remuneration, depreciation, legal and professional fees, business support fees etc. For example, on perusing the schedule “L” related to administrative expenses of M/s. Casa Maria Properties Private Limited, pg. no. 20 of the relevant, we find none of the accounts are prima facie directly identifiable as one meant for earning the exempt of income. Some of the expenses so claimed in the schedule related to other business expenses. Similar is the case with the other appeals under consideration as well. In such circumstances, we are of the view that the AO mechanically applied the provisions of Rule 8D(2)(iii) without examining the books of accounts of assessee and therefore, the addition is unsustainable in law. Thus, we are of the opinion that the discussion given by ITAT vide paragraph 9 of the order of the Tribunal in (supra) are considered relevant and significant. Accordingly, the said paragraph 7 is extracted as below: “From the details of the expenses, we find that the printing and stationery expenses and bank charges and commission are only two items which could have direct or proximate nexus with the investment and exempt income. Therefore, the disallowance u/s 144 r.w Rule 8D(2)(iii) cannot exceed to the allocable expenses incurred by the assessee for a composite activity resulting in taxable and exempt income. The working of disallowance under Rule 8D(2)(iii) by the Assessing Officer clearly shows that it exceeds not only the expenses debited and claimed by the assessee which could have a proximate nexus with the earning of exempt income but also to the total expenditure debited by the assessee in the P&L account under the head „administrative and other expenses‟. Therefore, it turns out to be contradictory to the actual facts and gives absurd results in complete disregard to the scheme of disallowance u/s 14A. Therefore, the provisions of Rule 8D(2)(iii) cannot be applied in the case of the assessee as it becomes unworkable and unrealistic. In the facts and circumstances of the case, we find that when the provisions of Rule 8D(2)(iii) becomes unworkable, then in the absence of any finding as well as any specific expenses debited to the P&L account which could have a direct or proximate nexus for earning the dividend income the disallowance made by the assessee suo motu is just and proper. Accordingly, we delete the disallowance made by the Assessing Officer.
7. Considering the above finding of the Tribunal, the decision of the Tribunal is applicable to the facts of the three appeals under consideration. Therefore, we are of the opinion, that the decisions of the CIT(A) in all these three cases are required to be reversed. Accordingly, the grounds raised
by the assessee in all the appeals are allowed.
8. In the result, all the three appeals by the three different assessee‟s are allowed.”
We find that the facts of the case in hand and the case law relied upon by the assessee are same on the issue in question. We find that the case of is fully covered in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal in assessee‟s own case. We, therefore, respectfully following the same direct the AO to delete the addition.
In the result, the appeal of the assessee is allowed. The above order was pronounced in the open court on 5TH Dec,2016.